How Does Bitcoin Security Work?

How Does Bitcoin Security Work?

When investing in anything one wants to ensure their assets are protected, particularly with Bitcoin. Despite being a digital currency, contrary to many misconceptions, it can still be kept secure in analogue form or in some of the safest Bitcoin wallets.

The Importance of Security

Advancement of technology is changing the way people live. Nowadays, cashless purchases have become increasingly popular, this includes payment with cryptocurrency.  Unfortunately, many people do not understand cryptocurrency’s functionality. And it is this very ambiguity that seeds doubt in many crypto sceptics.

Cryptocurrencies are usually built using blockchain technology, where transactions are recorded into “blocks” and time stamped. The result is a digital ledger of cryptocurrency transactions that is hard for hackers to manipulate.

Additionally, transactions require a two-factor authentication process. Users might be asked to enter a username and password for transactions. Then, they might have to enter an authentication code sent via text message. Nevertheless, cryptocurrencies are not un-hackable. Investors need to equip themselves with knowledge, to take the necessary precautions.

The first step is researching about cryptocurrency exchanges and the safest Bitcoin wallets on the market. These platforms provide the means to buy, sell and store digital currencies. With hundreds of exchanges and wallets to choose from, you need to conduct research, read reviews, and talk to experienced investors. An important factor to keep in mind is knowing how to store your digital currency either on an exchange or in a digital wallet.

Potential Challenges

Indubitably, Bitcoin is a volatile enough investment, therefore keeping your eyes peeled and not falling prey to many of the scams is important. As the adage goes, if something seems too good to be true, it probably is.

With the value of Bitcoin fluctuating from year to year, investors, and anyone interested in crypto have been on quite the rollercoaster ride. It is a well-known fact that early adopters and savvy investors manage to turn a few thousands into millions whenever Bitcoin’s value increases.

Since cryptocurrency is unregulated by the government, this opens many windows of opportunities for Bitcoin fraudsters, and anyone wishing to make a fortune can easily be duped by con artists who perpetuate Bitcoin scams.

Ponzi Schemes

The principle of a pyramid scheme, where you take money from new investors to pay previous investors, can be applied to Bitcoin scams. In 2019, three men who had been operating BitClub Network for years, were arrested in a $722 million cryptocurrency fraud scheme, which asked for money from investors in exchange for shares of cryptocurrency mining pools.

Fake Cryptocurrencies

These cryptocurrencies present themselves as great alternatives to Bitcoin. Investors are led to believe it is too late to cash in on Bitcoin and that it is best to invest in one of these emerging cryptocurrencies. My Big Coin was shut down for this reason. The fraudsters behind this fake crypto took $6 million from customers to supposedly invest in this made-up cryptocurrency, only to have the funds redirected into their personal bank accounts instead.

Pump-and-Dump Scams

Pump-and-dumps have been around for ages. In a nutshell, a group of scam artists get together and buy up a bunch of penny stocks, driving the price of those stocks higher and on the back of these rising prices, they get outsiders to invest in the stock – reeling them in with big promises of easy money. Unfortunately, new technology has made Bitcoin a target for pump-and-dump scams which are presented with the use of bogus news stories and fake celebrity endorsements.

Modern Security Measures

Since Bitcoin’s emergence, security has been the primary factor people are concerned about. Investors are opting for the Bitcoin wallets, robust contracts and practicing cold and hot-storage techniques. Thus, many crypto businesses have developed their own secure wallet, ensuring they are in control of their currencies and can transact in the domain with ease.

Private keys can be stored securely in the wallet, with built-in features such as auto-rejection of duplicate payments and authentication beyond two-factor. Additionally, the designed app or wallet usually adheres to standards of the highest degree.

Crypto holders are also going forward with reputed exchanges to trade on a regular basis. Brands that are well known in the marketplace are more secure. Indeed, exchanges such as Coinbase and AvaTrade amongst others are making transactions much easier, and with reduced fees.

Developing Increased Security in Crypto & Regulations

CryptoCurrency Security Standard (referred to as CCSS hereafter) is a set of requirements for all information systems that make use of cryptocurrencies, including exchanges, apps, and cryptocurrency storage solutions. By homogenizing the techniques and practices used by systems worldwide, end-users will be able to easily make informed decisions about the products and services to use and with which companies they wish to endorse.

CCSS is broken into three levels of increasing security.

  • Level I – an information system that protects crypto wallets.
  • Level II – a higher CCSS with enhanced levels of security, formalised policies and procedures.
  • Level III – advanced authentication mechanisms are applied to guarantee legitimacy of data. Assets are allocated geographically and logistically.

The above requirements make crypto wallets more robust against compromise.

Cryptocurrency wallets are managed by controls that comply with industry regulations. To ensure the standard remains impartial and in line with the industry’s best practices, the CCSS is supported by the CCSS Steering Committee.

Along with this committee, there is also the Cryptocurrency Certification Consortium (C4), a group that establishes cryptocurrency standards which helps to ensure openness and privacy, security and usability, as well as trust and decentralisation. C4 also provides certifications so professionals can establish their knowledge in cryptocurrencies.

The world of cryptocurrency generally brings with it a fair level of uncertainty and trepidation when it comes to security, especially for novice investors. Ultimately, doing the necessary research and choosing fool proof channels in which to invest, will equip investors with the knowledge, ensuring assets and investments are protected.

1 Comment

  1. Bitcoin entered the world of business and finance in 2008. A pseudonym Satoshi Nakamoto allegedly created it. However, there’s no documented proof of that. It is not clear if there were a group of people who used the name. But it is for sure that the technology created revolution in the market which left everyone wondering and huffing-puffing.

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